Higher Treasury yields, not Middle East tensions, are the real threat to risk assets

Higher yields, not war scares, are tightening the vise on risk assets. The recent spike in oil prices and volatility — triggered by Middle East tensions — briefly sent the S&P 500 plunging 9% before a rebound to a 1% loss. But credit spreads held steady, revealing that financial stress did not take root. Oil futures traded in steep backwardation, with longer-dated contracts priced $40 below near-term ones, a signal traders aren’t betting on a lasting supply shock. A ceasefire announced by President Trump then slashed oil prices by more than 17% in a day, relieving pressure across markets. Even gold and U.S. Treasuries, typically divergent, moved in tandem as countries near the Strait of Hormuz — through which 20% of global oil flows — sold liquid holdings to raise cash. Jurrien Timmer, Fidelity’s director of global macro, said investor positioning reflects an expectation of temporary disruption. He sees no structural damage. But he warns of two deeper risks: the market’s heavy tilt toward large-cap tech stocks and the rise in Treasury yields. The 10-year yield has climbed toward 4.5% and could reach 5%. That, Timmer argues, is the more durable threat to equities and other risk assets.